#FinancialBytes: Best ways for salaried individuals to save on tax
What's the story
Many taxpayers are often worried or confused about saving on income tax. Salaried individuals, especially, try to find tax-saving investment options to reduce tax liability every year.
However, saving taxes isn't as difficult as it may seem. There are several incentives/allowances under the IT Act that help minimize liability for salaried employees.
Here are some ways in which salaried individuals can save on taxes.
#1
Tax deduction benefits under Section 80C and Section 80D
Salaried individuals can save up to Rs. 1,50,000 on tax under Section 80C.
It provides for several deductions including payments towards life insurance policies, provident fund, fixed deposits (minimum five-year tenure), ELSS mutual funds, certain post-office schemes, and tuition fees (two children).
Section 80D provides for deduction of up to Rs. 25,000 on health insurance for self/spouse/children/parents (Rs. 30,000 if parents are senior citizens).
#2
Taxpayers can claim House Rent Allowance as tax deduction
Salaried individuals living in rented accommodations can claim tax deduction against House Rent Allowance (HRA).
The tax benefit will be the least of the following amounts:
The actual HRA received by the employees.
50% of the salary (basic salary+DA) for individuals living in metros; 40% for those living in non-metros.
The amount of actual rent paid minus 10% of employee's salary (basic salary+DA).
#3
Tax deduction on home loans under Sections 24, 80C, 80EE
Under Section 24, one can claim tax benefits of upto Rs. 2,00,000 on home loan interest. If the property is rented out, the entire loan interest can be claimed as deduction.
Section 80C provides for deduction of upto Rs. 1,50,000 deduction on principal repayment.
Under Section 80EE, first-time homeowners can claim additional Rs. 50,000 deduction over and above deductions under Sections 24 and 80C.
#4
Leave Travel Allowance and Transport Allowance
If an employer provides a transport allowance (for commuting between the residence and the office), then employees can claim deductions of up to Rs. 1,600 per month or Rs. 19,200 per year under Section 10(14) of the IT Act.
Also, one can claim tax benefits on Leave Travel Allowance (LTA), which can be availed by salaried individuals for two journeys in a four-year block.
Information
#5: Deductions on services and allowances provided by employers
Employees can claim deductions of upto Rs. 26,400/year on meal coupons provided by employers. Also, they can avail benefits on expenses related to mobile phones, Internet, etc. provided by employers to efficiently do their job (devices/services that are prepaid by employers or reimbursed by employees).